Chinese Shopping Splurges Are Set to Boost Alibaba’s Revenue

(WSJ) – Chinese consumers can’t stop filling their closets with stuff they buy online—and that is powering e-commerce company Alibaba Group Holding Ltd. to sterling results.

Alibaba predicts its revenue will increase almost 50% this fiscal year on the backs of China’s swelling ranks of middle-class consumers. Its shares listed on the New York Stock Exchange have risen 80% since the beginning of the year, and investors are likely to get more cheer when the e-commerce company reports income for the quarter ended June 30 on Thursday.

Alibaba is expected to announce adjusted earnings per share of 6.20 yuan (93 U.S. cents), up from 4.90 yuan a year earlier, according to 24 analysts surveyed by S&P Global Market Intelligence.Quarterly revenue is likely to have risen roughly 50% from the year-earlier period to 48 billion yuan ($7.2 billion), the S&P survey showed.

The company is likely to see continued growth as it leverages its wealth of big data to draw more advertising onto its platforms, Morgan Stanley Research analyst Grace Chen said in a note.

China’s e-commerce growth has slowed, but consultant McKinsey & Co. still expects an expansion of 19% this year—with much of that driven by more affluent consumers buying bigger-ticket items.

Founded by Jack Ma, Alibaba rose to prominence by selling affordable fashion and inexpensive merchandise to younger shoppers on its Taobao website. It is now hoping to catch a new wave by adding more luxury marques imported brands to its websites.

In August, the Hangzhou-based company opened a dedicated space stocking high-end clothes, skin-care products and watches from brands such as Burberry and Hugo Boss on Tmall, its website that connects brands with consumers. It also signed a deal with LVMH Moët Hennessy Louis Vuitton SE’s Spanish luxury brand Loewe to sell limited-edition handbags.

In a sign of its ambitions to expand beyond consumer goods, Alibaba recently signed a deal with U.S. hotel chain Marriott International Ltd. to help manage customer bookings from China.

There are a few clouds on Alibaba’s horizon, although so far they haven’t spooked investors.

One is the U.S. Securities and Exchange Commission, which launched an inquiry last year into Alibaba’s accounting practices and has asked the company for more details about a delivery affiliate and operating data from an online discount festival. In addition, the U.S. Trade Representative last year put Alibaba’s Taobao site on a list of “notorious marketplaces” for counterfeit and pirated goods.

Alibaba said it is cooperating with the SEC, and last week it announced plans to cut the time needed to handle a complaint from rights holders on fake goods to less than 24 hours. Previously, it could take as long as four days.
There also is growing competition from smaller rival JD.com Inc., which has added new product lines such as grocery, fashion and luxury and expanded its assortment of imported items.

Nasdaq -listed JD will report its quarterly earnings Monday before the market opens. After turning in a profitable first quarter, JD is likely to report a loss of 439 million yuan for the three months ended June 30, according to a survey of five analysts by S&P. JD’s chief financial officer warned in May that investments into new businesses and warehouses would weigh on profit this year.

As growth in China’s e-commerce industry slows, the competition is driving both Alibaba and JD.com overseas, said Matthew Crabbe, an analyst based in Kuala Lumpur, Malaysia, for Mintel Group.

“We see JD and Alibaba trying to acquire businesses in other parts of the world, particularly in Asia,” Mr. Crabbe said. “This tells us competition is not just about China right now, it’s quickly spreading elsewhere.”